Friday, January 26, 2007

Krauthammer in the Club

The president ostentatiously rolled out his 20-in-10 plan: reducing gasoline consumption by 20 percent in 10 years. This with Rube Goldberg regulation -- fuel-efficiency standards, artificially mandated levels of "renewable and alternative fuels in 2017'' and various bribes (er, incentives) for government-favored technologies -- of the kind we have been trying for three decades.

Good grief. I can give you a 20-in-2: tax gas to $4 a gallon. With oil prices having fallen to $55 a barrel, now is the time. The effect of a gas-tax hike will be seen in less than two years, and you don't even have to go back to the 1970s and the subsequent radical reduction in consumption to see how. Just look at last summer. Gas prices spike to $3 -- with the premium going to Vladimir Putin, Hugo Chavez and assorted sheiks, rather than the U.S. treasury -- and, presto, SUV sales plunge, the Prius is cool and car ads once again begin featuring miles per gallon ratings.

No regulator, no fuel-efficiency standards, no presidential exhortations, no grand experiments with switchgrass. Raise the price and people change their habits. It's the essence of capitalism.

About Me

I am the Robert M. Beren Professor of Economics at Harvard University, where I teach introductory economics (ec 10). I use this blog to keep in touch with my current and former students. Teachers and students at other schools, as well as others interested in economic issues, are welcome to use this resource.